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- 2. Requirements 4+ homeworks Project Final exam Distribution: 40-20-40 read before class no cheating
- 3. Textbooks J. Gruber "Public Finance and Public Policy," Worth Publishers, 2007 or later editions Russian translation
- 4. Topics 1. Subject and methods of Public Finance. 2. Externalities. Applications to Environment and Health. 3.
- 5. Topics (cont) 6. Social Insurance. Adverse selection and moral hazard. 7. Social security. Unemployment insurance. 8.
- 6. Introduction What is the proper role of government? Expenditure side: What services should the government provide?
- 7. THE FOUR QUESTIONS OF PUBLIC FINANCE When should the government intervene in the economy? How might
- 8. When Should the Government Intervene in the Economy? Normally, private markets are competitive and efficient. Generally
- 9. When Should the Government Intervene? Market failures “Problems” for markets: Externalities Private (Asymmetric) Information Small number
- 10. When Should the Government Intervene? Market failures In 2003, there were 45 million people without health
- 11. When Should the Government Intervene? Market failures Measles epidemic from 1989-1991, caused by low immunization rates
- 12. When Should the Government Intervene? Redistribution Government may care about both the size of the “economic
- 13. When Should the Government Intervene? Redistribution Of the uninsured, for example, roughly three-quarters are in families
- 14. How Might the Government Intervene? If the government wants to intervene in a market, there are
- 15. What Are the Effects of Alternative Interventions? Much of the focus of empirical public finance is
- 16. What Are the Effects of Alternative Interventions? Expanding health insurance Direct effect of government provision of
- 17. The Congressional Budget Office Congressional Budget Office (CBO) provides nonpartisan analyses needed for economic decisions of
- 18. Why Do Governments Do What They Do? Governments do not simply behave as benign actors who
- 19. Why Do Governments Do What They Do? For example, substantial variation across developed countries in health
- 20. FACTS ON GOVERNMENT The size and growth of government The “size” of the government is often
- 21. Source: OMB Historical Tables: Budget of the United States Government, Fiscal Year 2004
- 22. Source: OECD Historical Statistics
- 23. FACTS ON GOVERNMENT Decentralization and budgeting Other features Decentralization: In the United States., local, state and
- 24. Source: OMB Historical Tables: Budget of the United States Government, Fiscal Year 2004
- 25. Source: OMB Historical Tables: Budget of the United States Government, Fiscal Year 2004
- 26. FACTS ON GOVERNMENT Distribution of spending Other features Distribution of spending (Figure 7). In 1960: over
- 28. FACTS ON GOVERNMENT Distribution of revenue sources Other features Distribution of revenue (Figure 8a and 8b).
- 29. FACTS ON GOVERNMENT Distribution of revenue sources Other features Distribution of revenue different at state/local level.
- 32. FACTS ON GOVERNMENT Regulatory role of the government Other features Regulatory role–does not usually show up
- 33. Recap Four key questions in public finance When should the government intervene in the economy? How
- 34. Theoretical tools (recap): Income and substitution effects. Equivalent and compensating variations. Consumer surplus. What are the
- 35. QM (quantity of movies) QCD (quantity of CDs) 0 1 2 1 2 3 3
- 36. Spectrum auctions: Governments sell licenses to use a certain range of frequencies (electromagnetic spectrum). Many auctions.
- 37. Dynamic Optimal taxation. (Acemoglu, Golosov, Tsyvinski)
- 38. PUTTING THE TOOLS TO WORK TANF and labor supply among single mothers TANF is “Temporary Assistance
- 39. PUTTING THE TOOLS TO WORK Identifying the budget constraint What does the budget constraint look like?
- 40. PUTTING THE TOOLS TO WORK Identifying the budget constraint The “price” of one hour of leisure
- 41. Leisure (hours) Food consumption (QF) 0 1000 1500 20,000 2000 500 15,000 10,000 5,000
- 42. PUTTING THE TOOLS TO WORK The effect of TANF on the budget constraint Now, let’s introduce
- 43. PUTTING THE TOOLS TO WORK The effect of TANF on the budget constraint Assume that benefit
- 44. Leisure (hours) Food consumption (QF) 0 1,000 1,500 20,000 2,000 500 15,000 10,000 5,000 Slope on
- 45. PUTTING THE TOOLS TO WORK The effect of changes in the benefit guarantee One possible “policy
- 46. Leisure (hours) Food consumption (QF) 0 1,000 1,500 20,000 2,000 500 15,000 10,000 5,000 3,000 1,400
- 47. PUTTING THE TOOLS TO WORK How large will the labor supply response be? What is the
- 48. Leisure (hours) Food consumption (QF) 0 1,000 20,000 2,000 500 15,000 10,000 5,000 3,000 1,400 6,000
- 49. PUTTING THE TOOLS TO WORK How large will the labor supply response be? If she initially
- 50. Leisure (hours) Food consumption (QF) 0 1,000 20,000 2,000 500 15,000 10,000 5,000 3,000 1,400 6,000
- 51. PUTTING THE TOOLS TO WORK How large will the labor supply response be? Economic theory clearly
- 52. Leisure (hours) Food consumption (QF) 0 1,000 20,000 2,000 500 15,000 10,000 5,000 3,000 1,400 6,000
- 53. PUTTING THE TOOLS TO WORK How large will the labor supply response be? The actual magnitude
- 54. WELFARE IMPLICATIONS OF BENEFIT REDUCTIONS: TANF continued Efficiency and equity considerations in introducing or cutting TANF
- 55. Hours worked Wage H3 Labor demand w3 H2 w2 H1 w1 Labor supply Equilibrium with no
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